Hong Kong company reporting season

Top Chinese developer Country Garden’s core profit jumps 106pc as sales soar

Analysts expect Country’s Garden’s focus on smaller cities to deliver solid growth over the next three years

PUBLISHED : Tuesday, 20 March, 2018, 2:34pm
UPDATED : Tuesday, 20 March, 2018, 2:34pm

Country Garden Holdings, China’s largest developer by sales, on Tuesday reported a 106 per cent increase in core net profit for 2017 on the back of a 78.3 per cent jump in contracted sales, with analysts expecting the company to benefit from its focus on smaller cities.

Core net profit, which excludes valuation gains and foreign exchange losses, jumped to 24.69 billion yuan, the company said in a filing to the Hong Kong stock exchange. 

Net profit jumped 126.3 per cent to 26.06 billion yuan in 2017, from 11.52 billion yuan a year earlier, while total revenue grew 48.2 per cent to 226.9 billion yuan. 

Country Garden’s US$3 billion fundraising plans hit market

The Guangdong-based developer recorded contracted sales of 550.8 billion yuan (US$87 billion) in 2017, up from 308.8 billion yuan a year earlier.

Currently, it has a total of 1,468 projects covering 220 cities and 30 provinces in China. 

“Country Garden has benefited from tightening in tier 1 and top tier 2 cities, which resulted in strong sales in their projects located in peripheral areas, and this may continue,” said Ryan Li, analyst with JPMorgan. “On top of that, Country Garden is refocusing on tier 4 and 5 cities to tap into the high-end demand, and this could be a new driver of its sales. We believe that Country Garden will continue to deliver solid profit growth over the next three years. 

About 58 per cent of Country Garden’s contracted sales came from third and fourth tier cities in China. 

Morgan Stanley expects the company to see over 40 per cent year-on-year growth in contracted sales in 2018, higher than the bank’s forecast of 27 per cent for Country Garden’s peers. 

Guangdong’s Country Garden continues investment in Hong Kong, despite Beijing’s capital controls

“Country Garden has a high land bank exposure to the lower tier cities,” Morgan Stanley said in a note. “There is lower home ownership and a stronger intention in terms of net buys in lower tier cities than tier 1 and 2 cities, due to greater economic activity amid better connectivity.” 

Mo Bin, president and executive director of Country Garden, said the company will adjust its strategy in line with the government’s move to strengthen industry regulations and will strive to promote the development of the long-term property leasing business.

The Guangdong-based developer recorded contracted sales of 550.8 billion yuan (US$87 billion) in 2017, up from 308.8 billion yuan a year earlier

The focus will be on “increasing of profitability to achieve high quality and all-round development”.

The company declared a dividend of 0.2495 yuan per share, bringing its total dividend for 2017 to 0.3997 yuan per share. The total dividends in 2016 was 0.1712 yuan per share. 

Shares in Country Garden, which were 1.36 per cent lower at the lunch break, pared losses after the results were announced to trade 0.5 per cent lower at HK$16.26 

Separately, the company on Monday said it plans to spin-off and list its property management unit – Country Garden Services Holdings – in Hong Kong. 

“The spin-off would allow Country Garden Services to gain direct access to the capital markets for equity and/or debt financing to fund its existing operations and future expansion without reliance on the company, thereby accelerating its expansion and improving its operating and financial performance,” the company said in a filing. 

The developer had withdrawn Country Garden Services Holdings’ application for a Shanghai listing in December, because of policy changes in China. 

The company entered the Hong Kong market in June 2017, acquiring a redevelopment project in Kowloon City for HK$610 million. In September, it picked up a 60 per cent share of a waterfront residential site in Ma On Shan for HK$2.44 billion.